Does Google’s Non-Disclosure Agreement With Employees Overreach? (Guest Blog Post)

Guest Post by Sharon K. Sandeen

In the lead-up to this year’s Presidential election, there was a lot of chatter about the next “bomb-shell” bit of information that might be revealed about Donald Trump, particularly after his now-infamous pussy-grabbing comments. Recently, Tom Arnold, a contestant on “Celebrity Apprentice,” revealed that he is in possession of a video of the President-elect making additional inappropriate comments, but it has not yet been released due to a Non-Disclosure Agreement (NDA) that all those associated with the production were required to sign, reportedly including a $5 million liquidated damages clause.

For those who value freedom of speech and the press, and information diffusion more broadly, the fact that an NDA might be used to hide pertinent information about a person who is running for political office (and who is about to become the President of the United States) is very troubling. But the concern transcends political discourse, as a Private Attorney General Act (PAGA) lawsuit against Google, recently filed by “John Doe” in San Francisco, reveals. While NDAs have long been used to protect trade secrets, the central issues posed by the lawsuit concern both the legitimate scope of protected information and, more troubling, allegations that Google uses its NDA to intimidate employees.

As an expert on trade secret law, I am the first person to recommend NDAs, particularly since a written agreement of confidentiality is routinely cited by courts as key evidence of “reasonable efforts to maintain secrecy,” a necessary requirement for trade secret protection in the first place. The problem is that not all confidential business information is trade secret information, and even though companies should be able to contractually protect a broader set of confidential information than trade secrets (what Google defines in its NDA as “any information in any form that relates to Google or Google’s business that is not generally known”), NDA overreach and employee intimidation should not be countenanced.

Ironically, at least with respect to the President-elect’s reported wide-spread use of NDAs, one adverse consequence of NDA overreach is that such agreements can be used to prevent people from getting better jobs and moving-up the ladder of social mobility, a central promise of Mr. Trump’s campaign. This is particularly true with respect to employees who are not trained in the niceties of confidentiality and unfair competition law and who cannot afford to hire an attorney. As alleged in the complaint against Google, statements by company executives (including express or implicit threats of lawsuits) were used to intimidate employees into believing that their rights are more limited than the NDA actually states or that courts are willing to enforce. Exacerbating the risks of NDA overreach is the practical reality that their legitimacy is not ordinarily challenged until an employee is sued for an alleged breach of confidentiality, emotionally-charged allegations that usually put an employee at a disadvantage from the outset of a case.

The foregoing issues help explain why California has a strong public policy against non-compete agreements (NCAs), rendering them unenforceable except in limited circumstances. The primary rationales of this policy are society’s interest in free competition and employee mobility, but a bright-line rule against enforceability also diminishes the intimidation factor and reduces litigation costs because the “reasonableness” of the NCA need not be litigated. (For more on NCAs, see my article with Professor Elizabeth Rowe to be published by the Santa Clara High Technology Law Journal later this year.) However, because NDAs are more limited in scope than NCAs, particularly because they do not include an express promise not to compete, the same default rule of unenforceability does not apply to them. Instead, they will generally be enforced if they are deemed “reasonable” in scope.

In my opinion, businesses and courts alike need to take a closer look at what constitutes a reasonable NDA, and the recent lawsuit against Google should shed some light on the issue. Given the strong U.S. policy that favors the unfettered dissemination of information and knowledge, using NDAs to protect information that is generally known, or that is part of the general skill and knowledge of an employee, is not reasonable. It is also not reasonable for any liquidated damages provision in an NDA to be for the purpose of punishing or intimidating an employee, rather than being a realistic estimate of the damages that would be caused by a breach of the NDA. In this regard, companies often require all of their employees to enter into a “standard” NDA without carefully considering the types of information that each employee is given access to in the course and scope of their employment. This increases the potential for abuse and intimidation–and does not constitute a reasonable means of protecting any trade secrets that may exist.

There is also something very troubling about using NDAs to hide bad facts about a person or a company, particularly when the public’s interest in that information is strong. It is one thing to want to hide information about a new invention, customer preferences, or a product launch, and quite another to hide information about environmental pollution and sexual harassment. This concern has been ameliorated somewhat by the recently enacted Defend Trade Secrets Act of 2016, which includes a new “whistleblower immunity” that allows employees, with less fear of civil or criminal liability, to disclose trade secrets “in confidence” for the purpose of reporting or investigating a suspected violation of law. But companies that care about social responsibility and that want to avoid even the appearance of impropriety should care about transparency too. Adopting company policies and NDAs that carefully distinguish between the types of information that should be kept confidential and the types of information that can be disclosed and shared should be the goal. Particularly with respect to future Presidents, the public should insist on nothing less.